JC Penney just fired Ron Johnson, its less than competent CEO (good article here). His tenure is a classic example of how to destroy a company by bad strategy and bad management. None of this analysis is based on hindsight, but on a student report from March 2012. Since the student report, the company has underperformed index with 74%.
Now ex-CEO Ron Johnson was hired from Apple in late 2011 to boost the retailer's performance. I believe the previous CEO Mike Ullman was pushed out by activist investor William Ackman. The new CEO will be Mike Ullman.
I will analyse the company in two ways. First, I will look at strategy disconnects using the who-what-how framework. Second, I will look at the CEO's leadership and management practices.
Bad strategy
JC Penney is a department store for middle America and has more than 1,000 outlets, typically as an anchor tenant in suburban shopping malls.
Disconnect who-how. Middle-class people everywhere likes a bargain. That is why stores in general have a myriad of promotions, coupons, and sales throughout the year. Mr Johnson scrapped it all and introduced a policy of stable prices, i.e. no promotions. He seems to have taken this decision though some introspective thinking rather than talking to customers.
Disconnect who-what. Middle-aged, middle-class people in English speaking countries are not very fashionable compared to Latin countries (e.g. Brazil, Italy, Spain). Mr Johnson wanted to have more innovative and trendy products in the stores. He wanted to attract a younger crowd of customers. Just like Apple.
In the first disconnect, the CEO introduced something that the existing customers had not asked for and did not like. In the second disconnect, the CEO changed both the existing customers as well as the existing products. The US clothing industry is very fragmented, it is is not easy to change a customer base. The result was utterly predictable; revenue fell like a stone.
Bad management
Signal non-commitment to the staff. The CEO lived in California and commuted by private jet to the head office in Texas. He hired several other executives from Apple and they too commuted from California and New York. At the same time more than 1,000 staff at the head office were fired. What do you think the remaining staff would think about a CEO that does not even want to commit by moving his family to Texas?
Not listening to marketing research. The CEO was not willing to listen to market research, because his experience at Apple was that customers often do not know what they want. Do you think customers might know a bit more about clothing than smartphones?
Allen Questrom (CEO 2000-2004, share outperformed index with ~170% during his tenure) had the following to say to Financial Times:
If Mr Johnson had tested ideas, listened to customers and rolled out the ones they liked over, say, five years he would have had a better chance. “But he didn’t want to do that. He wanted to do all his ideas at once.” “You can lead [the customer], but you can’t be so far out in front of the band that they can’t see you.”
Prefer to be surrounded by yes-men. The CEO was not willing to listen to divergent opinions according to one voice in the Financial times:
“He is very articulate, very much a visionary,” says one person who knows the company. “He’s very clear as far as what he wants, what’s important for him.” But there is a catch. “He really did not tolerate people who had different points of view. Even if they could back up those points of view with a solid fact base.”
The future
Thanks to the student group consisting of TAN Bing Sheng, Jerreme YEO, Karl TEO, Marianne CHIN, Jeannie YANG, Catherine KUAH, Vanessa BOEY. I don't know why I allowed such a big group, but their report was great.
No comments:
Post a Comment